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about sole membership posed by the New Orleans seminary

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"There
should be an 'Abstract of Principles', or careful statement of theological
belief, which every professor in such an institution must sign when
inaugurated, so as to guard against the rise of erroneous and injurious
instruction in such a seat of sacred learning."

Response to reservations
about sole membership posed by the New Orleans seminary

OPINION MEMORANDUM

FROM:

D. August Boto and
James P. Guenther

DATE:

January 27, 2005

TO:

The Executive Committee

RE:

Response to reservations about
sole membership posed by the New Orleans seminary

Advice and Counsel to the Executive Committee
of the Southern Baptist Convention

The General Counsel of the Executive Committee of the Southern
Baptist Convention and the General Counsel of the Southern Baptist
Convention are of the opinion that the Amended and Restated Articles
of Incorporation (charter) of New Orleans Baptist Theological Seminary
adopted by the seminary's board of trustees should be approved by
the Southern Baptist Convention.

The proposed charter correctly declares the existing governance
arrangement between the Convention and the seminary's board of trustees.
The charter precisely follows the present Southern Baptist Convention's
Charter and Bylaws. The proposed charter declares that the seminary
is governed by a board of trustees elected by the Convention. The
proposed charter provides that the Convention's right to elect the
trustees cannot be taken away by that board of trustees. Thus, the
proposed charter requires that the Convention must approve any decision
by the board of trustees which would affect the Convention's right
to determine those persons who sit on the governing body of the
seminary, acts such as the amendment of the charter, dissolution,
merger, consolidation, lease or sale or the creation of a subsidiary.

The proposed charter is in all respects appropriate. It clearly
calls for the Convention's rights to be exercised by the messengers
in the annual meeting of the Convention. The rights of the board
of trustees are not diminished; rather they are explicitly declared
to be as the Convention's bylaws declare them to be. The necessary
language required for tax exempt charities who are described in
Section 501(c)(3) of the Internal Revenue Code is recited. The proposed
charter contains the same trustee removal process which appears
in the charters of some of the other entities of the Convention
and which was originally suggested by the International Mission
Board. The proposed charter complies with the requirements of the
Louisiana Nonprofit Corporation Law.

The proposed charter establishes the Convention
as the sole member of the seminary corporation. This gives
the Convention a clearly recognized corporate role in which
the Convention may appropriately exercise the rights given
to the Convention in the charter. The proposed charter, including
the establishment of the Convention as the seminary corporation's
sole member, makes the Convention secure in its rights in
perpetuity. The “member” role
also gives the Convention statutory immunity from the seminary's
obligations. ("A member of a corporation shall not be liable
personally for any obligation of the corporation." Section
219, Louisiana Nonprofit Corporation Law.)

The proposed charter has been analyzed by special Louisiana counsel
for ascending liability risks under Louisiana statutory and case
law. It is his opinion that the charter does not increase, and in
fact diminishes the risk that the seminary's liabilities will be
imputed to the Convention.

It is legally appropriate for the Convention, a Georgia corporation,
to occupy the sole member role in this Louisiana seminary corporation.
Not only is it legally appropriate, it is the opinion of counsel
that the charter and the sole member role for the Convention precisely
declare the historic corporate relationship between the Convention
corporation and the seminary corporation in language recognized
in Louisiana law.

The proposed charter well serves the Convention and the seminary
and is legally sound.

Counsel have noted the "reservations" expressed
by the seminary's board. Counsel are all of the opinion the
reservations are not well taken. Counsel's detailed response
to the asserted reservations is offered below.

No Authorities Cited

There is no basis in fact or in the law to justify the reservations.
The reservations are not accompanied by any legal authority. Louisiana
law does not support the reservations. Baptist history does not
support the polity alleged nor the supposed negative polity impact
asserted. The reservations are based only upon vague fears and incorrect
assumptions. The fears are simply not warranted.

Over the past seven years the reasons offered
by the seminary's board for its opposition to the sole member
model has changed as each successive reason was shown to
have no merit. The "reservations"
the seminary has now announced contain only conclusory statements;
they offer no statutory or case law authority for their conclusions.
Had the reservations been accompanied by a legal rationale for the
conclusions, counsel could analyze that rationale. But the seminary
has never cited legal authority for its opposition, and the seminary
now offers no legal authority for its "reservations."

Increased Liability Concerns Unjustified

The seminary has reservations about the Convention's liability
risks under the charter. In fact, the charter will help protect
the Convention and every entity of the Convention from being held
liable for New Orleans Seminary's obligations. All of the other
entities have adopted the sole membership plan. In so doing, all
of the other entities have helped insulate New Orleans Seminary
from the risk of becoming infected with their liabilities. Approval
by the Convention of the newly adopted charter of New Orleans Seminary
will cause that seminary to reciprocate and help the Convention
set up a barrier which will help prevent the spread of that seminary's
liabilities to its sister institutions and to the Convention itself.

The Convention elects separate boards to manage each entity corporation.
Each of those boards has the power to manage its institution. The
Convention and each entity are well served if each entity corporation
is solely accountable for its obligations. Sole membership helps
accomplish that goal.

Counsel are also satisfied that the charter precisely declares
the way the Convention and the board which the Convention elects
share governance over that seminary; it correctly states Baptist
polity. It states the present arrangement, and it does so with precision.

That precision is legally important. The proposed
charter precisely enumerates the Convention's governance rights
as sole member; it declares that in all other ways the board that
the Convention elects governs the institution. The charter is important
both because it declares what the Convention controls, and it declares
what the Convention does not control or what is controlled by the
entity's board of trustees.

The Convention's governance rights are designed to protect against
the various ways an entity might later try to leave the Convention.
That solves one issue.

The declaration that it is the board which
otherwise controls the seminary sets in place a corporate
structure which will help solve another issue. It will show
that the management control and the legal responsibility
that is a result of that control is exclusively the seminary’s.
Furthermore, the fact that the Convention will be the member,
a recognized corporate actor, of the corporation will give
clarity to the Convention's governance role. With the sole
member status, the Convention will enjoy statutory immunity
from the obligations of the seminary.

By specifically limiting the Convention's governing role as the
entity corporation's member to exclude management decisions, the
charter establishes a structure that counsel believes and advises
will help counsel defeat the several legal theories by which the
courts have imputed the liability of a religious institution to
its denominational parent.

Counsel have followed every major effort by someone to cause liability
to ascend in the denominations of this country, from an institution
of the denomination to the denomination itself. Counsel are satisfied
that they understand the theories and the facts on which those theories
turn.

And because it is counsel who must defend the Southern Baptist
Convention in such cases, we would prefer to defend them upon those
theories and relational constructs we believe would be most in keeping
with historic Baptist polity and would be most successful. While
we have heard the seminary prefers to use alternative methodologies
of accomplishing a sound defensive strategy that also fits the way
the SBC has always related to its entities just as sole membership
does, none has been offered in the several years of discussion of
this issue, nor have any even been identified.

Special Louisiana Counsel has provided case
law analysis of the "five-pronged test" which has been used by the Louisiana
courts to determine when justice requires a deviation from the general
rule that only the corporation which acted is liable for the action.
Special Louisiana Counsel has also advised of recent cases which
speak of the courts' need to evaluate the "totality of circumstances" in
determining if one corporation should be liable for the actions
of another corporation.

If a court were to hold the Convention liable for the obligations
of an entity of the Convention, the Convention might not have the
means to satisfy the obligation. The Convention has few reserves.
The monies which flow through the Cooperative Program to the entities
of the Convention are given by Southern Baptists to support those
ministries. They are distributed as and when received. So, the Convention
is not structured in such a way that the Convention has the resources
with which it could pay significant obligations of the entities.

Catholic dioceses with millions of dollars of assets have been
forced into bankruptcy as the result of judgments against them for
the conduct of Catholic priests. The Southern Baptist Convention
is regularly sued by someone who claims to have been injured by
a minister or employee of a church related to the Convention. And
just as regularly, the Convention is sued by someone injured by
an employee or agent of an entity of this Convention. The Convention
has never lost one of these cases. But, it would not take a judgment
against the Convention in an amount seen in the Catholic child abuse
cases to put the Convention in legal peril. Even a relatively small
judgment would threaten the Convention and its Cooperative Program
support line to the ministries which the Convention fosters. The
sole membership plan is a significant step toward avoiding that
risk in counsel's opinion.

SBC polity enables counsel to demonstrate that the Convention does
not control a church or a minister or other employee of a church.
Absent control, the Convention is not responsible for their acts.
With sole membership charters in place, Convention counsel can more
readily show that the Convention similarly does not control the
employees of the entities. With that demonstrated, the Convention
can be more quickly dismissed in these cases.

The sole member model is the result of counsel's
experience, counsel's study of the experience of other denominations,
and counsel's careful analysis of the law by which the courts
determine if liability of an institution "ascends" or
does not. Southern Baptist Convention polity naturally provides
the Convention a defense in these cases where hierarchical
churches have no defense. The Convention bylaws have always
been precise when it comes to the Convention's lack of management
control over churches and Convention entities. Sole membership
causes the entities' legal instruments to be equally clear
on the subject of Convention control, or when it comes to
ascending liability, the Convention's limited control.

In summary, the proposed charter does two things: It says precisely
how the Convention controls the seminary, and it says precisely
how the Convention does not control the seminary. It enumerates
the matters the Convention must approve. It provides that in all
other matters the seminary is controlled by its board of trustees.
It is legally important to distinguish precisely how the Convention
controls from how the board controls.

With the charter's saying precisely how the Convention controls
the seminary, the charter will prevent the Convention from losing
those rights of control. The only control rights the charter gives
the Convention relate to the fundamental right of the Convention
to elect the seminary's trustees. The charter says the Convention
elects the trustees and that the Convention has the right to approve
any action by the seminary which would destroy that right. Those
actions are the amendment of the charter, merger, sale, lease or
dissolution of the seminary or the creation of a subsidiary. In
other words, the Convention's rights in the charter simply give
the Convention the right to elect the trustees and to do so in perpetuity.
The board must secure the Convention's approval if the board wants
to do any of these enumerated things.

With the charter's saying that the board of trustees otherwise
governs the institution, the charter will help the Convention demonstrate
that the Convention does not control those risks which cause people
to sue the entity and sometimes the Convention. For example, it
will be clear that it is the seminary which selects, employs and
supervises its employees, not the Convention. Thus, the Convention
can point to the seminary's charter to show that the Convention
ought not be held responsible for what the Convention does not control,
that the Convention ought not be responsible for the seminary's
decisions regarding its employees and their activities.

Counsel offer the following advice regarding the following specific
reservations:

1. Claim: "Sole membership
in Louisiana means something different than sole membership
in the home states of other entities."

Response: Every state's
nonprofit corporation act is probably unique in one way or
another. But, Special Louisiana Counsel has confirmed the
general counsel's understanding that there is nothing different
about sole membership in Louisiana which makes the plan faulty.
While the seminary has made vague references to the differences
in Louisiana law, the seminary has never offered any statutory
or case law authority to support their reservation in this
regard. Early on, the seminary's attorney corrected the seminary
and assured the seminary's board that "the Napoleonic Code" had
nothing to do with modern nonprofit corporation law in Louisiana
nor with sole membership.

2. Claim: "Multiple
Louisiana attorneys have told us it is impossible for this
proposal to fulfill both requests . . . (that is, to assure)
the messengers historic rights and give the Convention legal
immunity. . . . The overwhelming consensus of all the opinions
we sought is that making the SBC the sole member of our Louisiana
corporation will dramatically increase the risk of financial
liability for the SBC in the state of Louisiana. Messengers
must decide if the possibility of putting the Cooperative
Program at risk in a lawsuit is worth adopting this measure
. . . ."

Response: The seminary has never shown counsel any written opinions
to this effect. Thus, counsel cannot identify why the opinions are
in error.

Counsel does know that at least one of the attorneys who offered
the seminary his opinion that the proposed charter would increase
the Convention's liability stated that he understood the Convention
does not now have the rights which the new charter will give the
Convention. Naturally, therefore, he saw the proposed charter as
increasing the Convention's control rights over the seminary. In
the opinion of counsel, the seminary's attorney simply did not understand
Southern Baptist polity.

The Convention understands and has always understood that the Convention
has the right to elect the seminary's trustees and the right to
protect that right by approving any action of the board which would
defeat its right. The seminary's attorney only seemed to know about
the Convention-seminary relationship from what he could read in
the seminary's present and proposed charter. Therefore, if he came
to the legal conclusion that the present charter is deficient when
it comes to giving the Convention the right to elect the seminary's
trustees in perpetuity, then that is another reason the new charter
is an improvement over the present charter.
Furthermore, the messengers need not worry that claiming the Convention’s
ownership rights comes with a “liability price tag.”

· The Louisiana law says that
a member of a nonprofit corporation does not become liable
for the corporation's obligations. There is no dispute
about that. Presently, the trustees are also the corporation's
members. But Louisiana courts should not be confused
and made to believe that Baptists think their trustees
should be the owners of their institutions. If the Convention
becomes the corporation's member, the Convention gains
the statutory immunity, and the courts will understand
clearly, in secular corporation language, that the seminary
belongs to the Convention.

· Additionally, the control rights
the Convention claims, the right to elect trustees and
approve dissolution, sale, lease, merger, etc., do not
give the Convention the right to govern the institution
in those areas which cause law suits for damages.

Thus, the proposed charter gives the Convention the statutory immunity
which comes with being the member of the seminary corporation, and
it makes it clear that the Convention does not control and, thus
the law says, has no responsibility for, the management of the seminary
out of which litigation arises.

But, even if the messengers were put to the choice either to make
certain that the seminary would always remain an entity of the Southern
Baptist Convention or to risk liability, counsel suspect the messengers
would choose to make certain the seminary remains an entity of the
Southern Baptist Convention. Risk accompanies all ministry. If avoidance
of risk became the Convention's primary goal, the Convention should
abandon ministry.

3. Claim: "The specific
process that has been initiated by the Executive Committee
could increase the legal liability for the SBC."

Response: This "reservation" points to the fact that
at its Executive Committee’s recommendation, the Convention
requested the seminary's board of trustees to adopt a new charter,
making the Convention the seminary corporation's sole member, and
reciting that the member had these certain enumerated powers and
that otherwise the board governs the institution. The Convention's
request fully recognized the authority of the board of trustees
of the seminary when it came to the seminary's ability to amend
its charter. The Convention does not now have the right to amend
the seminary's charter and will not have that right under the new
charter. The Convention's right under the present charter and under
the new charter is the same: Amendment of the seminary's charter
is accomplished by the vote of the seminary board and the approval
of the Convention's messengers.

If the Convention could unilaterally amend the seminary's charter,
counsel presume the messengers would have done that when the Executive
Committee of the Southern Baptist Convention first recommended sole
membership, and no commotion would have occurred. But, the messengers
knew they did not have that authority.

4. Claim: "Sole membership
. . . is a step toward the centralization of control and
authority in Southern Baptist life."

Response: Counsel believe
that "Centralization of control
and authority in Southern Baptist life" is an alarm sounded
by the seminary without any basis whatsoever. Counsel cannot discern
one iota of centralization of control and authority in this plan.
The seminary's reservation is explained by a vague fear that somehow,
someway, maybe not now, but in the future, the Executive Committee
of the Southern Baptist Convention might somehow gain power in
this change. While fear of the Executive Committee is being claimed,
counsel can only see it as a fear of the messengers, since the
proposed charter says that only the messengers constituting the
Southern Baptist Convention in session have the powers enumerated.
The Executive Committee has no authority and never shall have any
authority beyond that which the messengers choose to give it.

Sole membership has nothing to do with the
Executive Committee of the Southern Baptist Convention, which
itself is planning to make the Southern Baptist Convention
its sole member. The only two parties in the seminary’s
sole membership plan are the messengers, acting for the Convention,
and the seminary's board of trustees. The present division
of power between the messengers and the board is perpetuated
in the plan. The proposed charter cements the messengers'
authority.

Seminary representatives have spoken vaguely of a fear that the
Executive Committee of the Southern Baptist Convention would come
to replace, counsel suppose, the role of the seminary's board. Sole
membership has nothing whatsoever to do with the Executive Committee's
role in the structure of the Convention. The Convention's bylaws
say precisely that the seminary's board, not the Executive Committee
of the Southern Baptist Convention, manages the seminary. Sole membership
does not change that.

The charter adopted by the seminary is carefully crafted to make
clear that it is the Southern Baptist Convention, a Georgia corporation,
which is the sole member of the seminary corporation. It is not
the Executive Committee of the Southern Baptist Convention, a Tennessee
corporation.

But, for the sake of argument, suppose that
the messengers decided in the future that they wanted the
Executive Committee of the Southern Baptist Convention to
elect the seminary’s trustees, not the
Southern Baptist Convention. The only way that could occur would
be if the seminary’s newly adopted charter is again amended.
That is so because the proposed charter says it is only the messengers
who elect the seminary's trustees. That charter can never be amended
except after the seminary's board votes to amend it. The charter
itself says that, too. So, if sole membership is a smoke screen
behind which lurks some sinister power-grab by the Executive Committee,
it seems fatally flawed to counsel. And since counsel initiated
the original concept of sole membership, and counsel had no notion
of rearranging the power of the Executive Committee, any effect
of sole membership on Executive Committee authority evaded counsel
then and continues to evade counsel, and, counsel supposes, will
continue to do so until someone documents a rational theory showing
how such a thing could be possible.

Counsel simply fail to comprehend the seminary's
reservations on this point. Counsel especially fail to understand
the point in the reservation which says: "The centralization
of control and authority will ultimately lead to a diminished
voice for the messengers of the Convention. A diminished
voice of the messengers leads to a diminished voice of the
local church."

Counsel cannot imagine any button the seminary could press which
would cause a more visceral reaction among Southern Baptists than
to raise the specter of a diminished voice of the messengers and
the churches in the affairs of the Southern Baptist Convention.
Counsel can see no basis whatsoever for this alarmist reservation,
especially in light of the fact that sole membership actually has
the opposite effect, firmly establishing the voice of the messenger
in trustee selection and other approval processes.

D. August Boto
General Counsel and Vice President for Convention
Policy
Executive Committee of the Southern Baptist Convention

James P. Guenther
General Counsel, Southern Baptist Convention

1 At every point in this
opinion where the word "member" appears,
one should think "Southern Baptist Convention"